Tobacco group fired up over ‘biased’ illicit cigarette report
Multinationals behind report on growing illegal trade, the independent association charges
An independent company in the tobacco industry, Fair-Trade Independent Tobacco Association (Fita), has punched holes in the latest report by Ipsos on illicit cigarettes, saying it was commissioned by multinational companies to vilify its members. The Tobacco Market Study by Ipsos, commissioned by the Tobacco Institute of Southern Africa (Tisa), was released on Tuesday and has revealed the South African Revenue Services (Sars) has lost a staggering R8bn because of illicit cigarettes in SA.
This was despite promises of a crackdown from Sars.
Ipsos said manufacturers of cigarettes selling below the minimum tax have expanded their distribution at the same time Sars has been promising to crack down.
It highlighted Gold Leaf’s RG brand, a top-selling brand in SA, which now represents 73% of the market for illegal cigarettes.
It also mentioned Best Tobacco Company, whose brand Caesar, selling at R10 a packet, is also expanding to the Eastern Cape.
But Sinenhlanhla Mnguni of Fita said the report was inconclusive.
“They have even gone to the extent of strong-arming retail stores not to stock our member brands on the basis of the aforementioned Ipsos report,” claimed Mnguni.
The report said Gold Leaf could be seen as the biggest tobacco company by sales volume if there is another tax increase on legal cigarettes in February 2019.
It further said that cigarettes selling for less than the tax of R17.85 per pack owed to Sars have grown from 33% to 42% of the informal market.
“According to a 2015 judgment, cigarettes that sell for below the minimum tax can be deemed as illicit,” read the Ipsos report.
Yesterday, Gold Leaf’s attorney, Raees Saint, said the report defaming the company, adding that multinational companies, who wanted them out of the market, were behind it. “We deny that we are selling cigarettes illegal in this country. This is untrue. We will challenge the people behind this report. It is defaming and they want people not to buy our cigarettes.”
Best Tobacco could not be reached for comment.
Questions were sent to Sars but at the time of publication it had yet to respond.
Mnguni said they were supporting any efforts by the state and affected industry stakeholders to curb smuggling and the illicit trade in cigarettes.
“We feel that smuggling, although a problem, pales in comparison to the vast amounts of profits which leave our shores as a result of the local tobacco industry being monopolised by foreign-owned multinationals that control over 80% of the market in a country where transformation is said, by government, to be a priority.” In 2017, Sars said it was increasing supervision of cigarettes exported via warehouses. “We’re improving the manual tracking of cigarettes in transit through South Africa. We’re working with tobacco industry experts to develop a way of detecting illicit cigarettes,” it said.
Sars also said it was improving authentication marking on cigarettes, and would educate the public on how to identify illicit cigarettes.
Between 2012 and March 2018, 234 cases of illicit tobacco trading were opened by Sars. A number of individuals and companies were fined between R500 and R250,000, while some cases were withdrawn.
An Ipsos retail audit, conducted in September and October, reveals that tobacco products below the minimum tax due have soared in the informal retail sector.
“Best Tobacco prices are 73% cheaper than the reference price in the legal market used by treasury to determine excise duties, and 44% cheaper than minimum taxes owed on each pack.”
Tisa chairperson François van der Merwe said that until the government is able to collect taxes from those who evade paying, it should think extremely carefully about increasing taxes again on the legal market.
“In these circumstances, another tax increase would be a betrayal of the 12,000 workers whose jobs depend on the legal tobacco sector. Worse still, it would send a message to South Africa that the government wants to discourage the consumption of tax-paid cigarettes, but is relatively relaxed about the consumption of illegal cigarettes,” he said.
Mnguni said the question of illicit trade is very complex.
“Credible studies, by among others eminent academics, have advanced that the prevalence and size of the so-called illicit trade in tobacco products is often exaggerated by some in order to attempt to influence government policies and directives in the industry and to deflect law-enforcement efforts away from lesser-known practices such as aggressive tax-avoidance schemes and tax-base erosion practices.”